Felipe Calderón on his presidency of Mexico

Looking back on the Calderón years

ON OCTOBER 10th our Mexico City bureau chief interviewed Felipe Calderón, the president of Mexico, at the presidential residence of Los Pinos. They discussed Mexico’s economy, its security, and the challenges of federalism. The following is an edited transcript.

The Economist: It seems that in the past few years there has been a lot of interest in the Brazilian economy, and that now interest is turning to the Mexican economy. Why are we seeing this change?

Calderón: I’m grateful that there is this interest in Mexico. It seems that for a long time the Brazilian economy benefited greatly from the increase in the price of commodities, and particularly from the increase in its exports to China. Now that there has been real instability in the price of commodities, many prices have fallen, and the level of exports to China has declined, or China’s economy is growing at a slower rate, this is impacting Brazil.

When we look at Mexico these past years, we implemented a very intense reform process aimed at improving our competitiveness. What did we do?...A big programme of deregulation, in which we eliminated about 16,000 rules or regulations at the federal level, which meant eliminating more than 2,000 bureaucratic procedures. Secondly we gave a notable boost, probably without precedent, to infrastructure, constructing or refurbishing 20,000km of highways. Third, we invested a lot in human capital: 140 new universities were founded, and the campuses of at least 100 more were increased. With that, 113,000 engineers are graduating every year, which gives us greater competitiveness, particularly in terms of manufacturing.

Fourth, we reduced tariffs. The average tariff on manufacturing supplies reduced from 12% to 4%, which converted Mexico into a very competitive country, particularly in manufacturing and industry. One example is that when I entered the presidency, Mexico was the ninth-biggest exporter of automobiles in the world, and now it is the fourth-biggest, ahead of the United States. And at a time when the aggregate value of the global economy is becoming more focused on manufacturing and less on commodities, that has benefited Mexico.

Mexico became more competitive and Brazil is encountering problems with competitiveness, basically through the appreciation of the real, which in truth is not a phenomenon to blame on the Brazilians, but rather what is called “Dutch disease”—a massive entry of foreign capital that causes their currency to appreciate. There have also been cases of monetary policy that can complicate things. Interest rates in Mexico, for example, have stayed at around 4%. The rates paid by the central bank of Brazil were at levels of 13% or 14% for a long time, so that provoked a massive inflow of money, the real appreciated and the [stronger] real made Brazil lose a lot of competitiveness in terms of manufacturing.

The Economist: Some people think that Mexico could grow at 6% a year. How? And what are the risks to the Mexican economy?

Calderón: Mexico could grow at rates of 6% or more if it did various things. If it continues with a process of deregulation and opening to competition, particularly in the telecommunications sector. Secondly, if it opened up to competition in the field of energy. And third, if it sorts out our problem of the rule of law, which as we have said is a very important challenge for Mexico. These three things would give Mexico the potential to grow permanently, or at least for many years, above 6%.

Obviously the risk for any economy that registers strong growth can be overheating, growth in inflation. It isn’t yet a relevant problem in Mexico but one has to be careful of it. The other risk is that the process of change slows down, that the temptation arrives to go back to closing the borders to manufacturing supplies, that protectionist practices arise, that we go back to over-regulating the economy, that sectors close up that must be opened, such as telecommunications.

All of that could put Mexico’s economic growth at risk. If things do not advance in terms of security, if the goal is not achieved of having the rule of law...that could mean that Mexico doesn’t take advantage of this enormous advantage that it could have in the future.

The Economist: We have recently seen the fall of several leading “capos” of organised crime. Why now, and what will be the result?

Calderón: As there are advances in the intelligence capabilities of the federal forces, and in the cooperation that we have with the United States, we are seeing the fall of lieutenants, operators and accountants from ever higher levels, and that is improving the effectiveness of our investigations. In other words, an intermediate leader is captured and that allows us to investigate and rapidly make a connection with his superior, or with his collaborators, and as we are climbing up the levels we are getting closer to the heart or the head of the organisations. In this case it is yielding fruit in a very positive way.

Now, what do I see? It is uncertain what this process will yield, but generally what is seen...is a readjustment of the criminal organisations from within and from the outside, and after that period of adjustment, which can be turbulent, and which can be accompanied by other violent incidents, comes a period of stabilisation of the areas which is more positive and more constructive in so far as the power of these organisations is replaced, or this vacuum is filled by the authorities, which is what we are seeking.

The Economist: It seems that sometimes this period [of turbulence] is a very long period...The impact of the fall of Beltrán Leyva [in Morelos] is still felt and that was nearly three years ago.

Calderón: In Morelos and Guerrero [the next-door state], in both cases. But that is precisely because there has not been an authority that replaces their hegemony. The objective is that the government takes control, that the authorities take control, that the governor takes control and that the mayor takes control and that the cartels do not take control. If a cartel is weakened and made vulnerable, as happened to the Beltrán Leyva, but there is no authority or the authorities do not assume the role of leadership and enforcement that they must take on, evidently that prolongs that situation.

The Economist: And the federal government couldn’t play a bigger role in this?

Calderón: It does [play that role] but it has a limit. This is a federal government, which as its name indicates, has a jurisdiction which is not that of the state authorities and much less of the municipalities. I would love to be the mayor of Acapulco—I’d enjoy it very much, it’s a city that I love—but the truth is that there is a [local] authority there, and there is a governor in Guerrero [the state in which Acapulco lies], and that mayor [of Acapulco] has 4,000 police—between the two of them they have 5,000—and the ideal thing is for those police forces to work. And while that doesn’t happen, well obviously the process of instability continues.

The Economist: The cases of Tijuana and Ciudad Juárez are interesting. Many people say that what has happened is that one cartel has beaten the other.

Calderón: Is there any foundation for saying that?...This subject attracts a lot of blabbermouths. They say that success has many fathers and that failure is an orphan.

In Juárez the violence has reduced and the number of murders has fallen by 76%, between January 2011 and August 2012. And to say that that is due to one cartel beating another is simply absurd. Above all because the model in Ciudad Juárez—the “We are all Juárez” strategy—can be a genuinely useful model for other cases in which a government intervention is needed.

Contrary to what many blabbermouths also say, the government’s strategy is not reduced to a military presence. In fact I think that what happened in Juárez is due much more to the integral nature of the strategy than the mere presence of federal forces.

Are there still drugs in Juárez? Well of course, but it has never been the objective of “We are all Juárez”, nor of the public-security strategy, to end something that it is impossible to end, namely the consumption of drugs or their trafficking. The fundamental objective is to establish the rule of law through an integral strategy that involves combating the criminals, constructing reliable and effective security and justice institutions, and reconstructing the social fabric.

The [national] homicide rate between the first half of 2011 and the first half of 2012 reduced for the first time by about 8%...The fact is that for the first time we see a turning point in this dynamic that Mexico is living.

The Economist: Has Mexico passed the worst point?

Calderón: No, we’re not, I wouldn’t venture to... it’s very difficult to say so categorically, but the fact is that in other situations that have been seen clearly in Colombia, this turning point lasted many years; that is to say, for the homicides to begin to decline, Colombia had to spend the whole decade of the 1980s, all of the 1990s, Pablo Escobar [then Colombia’s most powerful capo] was a member of congress, he murdered a justice minister, killed several presidential candidates and only when [Álvaro] Uribe [president of Colombia between 2002 and 2010] had been pursuing his strategy for several years, did the murder rate begin to decline.

In Mexico I think that we are living through many phases of that process, but I believe that the intervention that we made and the process of change that we are implementing has allowed that this process has at least been reduced, and there is already a turning point in homicides between 2011 and 2012...As it’s difficult to affirm or foresee if there is going to be a systematic recovery in the homicide rate, I can’t tell you if the worst of it is yet over. But if this trend of the reduction in homicides remains, the worst will definitely be over.

The Economist: It seems that in many areas, not just in security, often the problems occur at the state level. Have you found that [the states] are not keeping their side of the bargain?

Calderón: How can I put this carefully? Being politically correct, one of my conclusions as president is that our federal system does not have the incentives correctly aligned for an effective collaboration. As a consequence, in various ways it is easier to leave it to the federal government or blame the federal government. Ultimately in the United States, for instance, the entity responsible for the security of citizens and for the investigation [of crimes] is the country itself, it’s the level closest to the citizen. In fact in Mexico security was always a constitutional responsibility of the municipalities, only since very recently has it been a responsibility shared by the three levels of government. But ultimately, even in the case of robbery...a strictly local crime, it is attributed to and assigned, including in public opinion and in surveys, to the federal government, to the president.

The Economist: Why?

Calderón: I don’t know if it’s a centralist, presidential culture, to see that the origin of all the rights and wrongs is the president. There isn’t exactly a federalist culture. Maybe we have always been culturally a centralist country, and for that reason the adaptation of the federalist model, which is inspired by the United States’ model, brought us to the system that we have now.

I think we have to revise the incentives between the federal government, the states and the municipalities so that we do things right. In other words, so that doing your job is rewarded and avoiding your responsibilities is punished, at all levels. A mayor or a governor or a local security secretary can avoid his responsibility for cleaning up the police, and as a result avoid his responsibility to confront criminals, and then blame or request help from the federal government. And in our system that is rewarded because if you have a very serious problem in your state, the federal government will come to help you, and massively so.

I proposed in a political reform that there should be re-election, at least of mayors and congressmen. And I think that re-election is a powerful stimulus for a mayor to meet his responsibilities. If a mayor doesn’t solve, or at least doesn’t take on with courage and judgment his duty to protect citizens, the citizens aren’t going to vote for him and they will end not only his chances of being mayor but his political career. As long as a mayor can, he has one single period in office and he can avoid doing things because there’s not going to be any political punishment.

The Economist: What is your message for those who live in the United States, including those who still buy drugs?

Calderón: Clearly the origin of the problem, the biggest source of income for the criminals continues to be the sale of drugs in the United States. Consumption in the United States is behind this problem of violence that we are experiencing in Mexico, Guatemala, Honduras, El Salvador, Ecuador and practically all of the Caribbean. And that has to end. So either the United States and its society, its government and its congress decide to drastically reduce their consumption of drugs, or if they are not going to reduce it they at least have the moral responsibility to reduce the flow of money towards Mexico, which goes into the hands of criminals.

To reduce that flow of money they have the obligation to find ways that allow it to occur. They have to explore even market mechanisms to see if that can allow the flow of money to reduce. If they want to take all the drugs they want, as far as I’m concerned let them take them. I don’t agree with it but it’s their decision, as consumers and as a society. What I do not accept is that they continue passing their money to the hands of killers, who are committing terrible crimes in Mexico and in the whole region.

Readers' comments

Damn well said: "Are there still drugs in Juárez? Well of course, but it has never been the objective of “We are all Juárez”, nor of the public-security strategy, to end something that it is impossible to end, namely the consumption of drugs or their trafficking. The fundamental objective is to establish the rule of law through an integral strategy that involves combating the criminals, constructing reliable and effective security and justice institutions, and reconstructing the social fabric."

Now when will the US take this from his playbook? If Mr. Zedillo can be protected from revenge seekers at Yale, we should bring this guy in and give him an endowed chair to advise on the drug problem. The US has had one too many "drug czars" and its time for a change. Maybe an outsider can apply the common sense we seem to lack on drug policy here in the Estados Unidos.

The situation ain't easy, on the south side of the frontier is a country affected recently by drug wars and cartels managing to take over the dominant drug business position, the curious fact is that only a minor percentage of the Mexican population actually consume drugs, despite Calderon's efforts to reduce drug trafficking or at least it's social side effects, on the north side is USA where there's a significant percentage of people who consumes drugs. As long as American Citizens don't realize they need to either reduce consume or "create their own market (read as legalize)" Mexican Drug Cartels will keep their money sources (USA flows of money). A conjunct effort is required, not only is Mexico's problem but USA problem as well...

Maybe those salaries and resources could be better asigned to more direct efforts such as the US Border Patrol or economic development aid in Mexico and Central America. Let the local police handle the local drug business.

There are ways to discourage recreational drug use and thereby consumption without law enforcement being involved. But that would mean having to deal with root causes that American society probably does not possess the social will to address. And I still don't buy the notion that legalization will break the cartel market necessarily. They are probably smart enough to launder money and get around license control unless regulation is very tight and strict. And history does not bode well regarding the necessary regulatory will power. But you are right about the point of joint efforts.

Of course, that ain't the perfect desirable solution but among the long term solution (focus on education, social development, awareness of side effects on drug consumption, etc) and the "aggressive" short term strategy (persecution, military intervention, direct confrontation, excessive borderline watching) US President and Mexico's future Government don't have many choices

Yes, all too true in today's political environment. Good point. Rather like the continuation of the BATF (Bureau of Alcohol, Tobacco, and Firearms). "Conservatives" like it because of the alcohol while "Liberals" like it because of the tobacco control and gun-control functions.

It is growing at a 4% rate right now, even with the state of the US economy, the worst security crisis in history and terrible fiscal and energy laws. Why do you think, as an economist, that if those things changed Mexico could not grow faster than that?

Because Mexico already had its growth spurt back in the 60s and 70s, when it underwent massive urbanization and industrialization (that´s whats happening in China right now).

So in other words, the only way a country can grow at 5%+, is for it to have a huge pent up rural population that suddenly migrates to the cities driven by fast paced industrialization. Mexico´s socioeconomic landscape does not have such condition anymore; its economy is mature enough that it cannot grow that fast. Only immature economies can.

So the objective is to grow at a steady 3%-4% rate for many years. That´s enough to get us into the first world this century.